China reserved cotton sales-analysis on trading volumes and prices

2018-07-12 09:12:36
CCFGroup

By Jul 9, 1.49 million tons of reserved cotton have been totally sold, with trading proportion at 60%. On June 4, Chinese government announced to not allow traders to take part in the auction, leading to lower trading proportion. This article will analyze the trading volumes and prices change.

1. Trading volumes of reserved cotton

After traders are not allowed to take part in the auction from Jun 4, trading volumes of reserved cotton have been constantly decreasing, and the trading ratio once dipped to 30%. Though it was somewhat related to the quality, it was also influenced by the market situation and market mindset. Trading proportion hovered around 40-60%. Reserved Xinjiang cotton continued to be the major buying variety, while for reserved upcountry cotton, trading proportion was below 50%. Looking from the trading proportion and trading volumes, the situation was worse compared to the corresponding period of last year.

Reserved cotton sales from Mar 12 to Jul 9, 2018

kt/yuan/mt

Proportion

Trading volumes

Trading ratio

Average trading price

Costs to cotton yarn 32S

Xinjiang cotton

36.80%

890

97%

14966

22819

Upcountry cotton

63.20%

600

43%

14122

21899

Total

——

1490

60%

14617

22439

for the costs to cotton yarn 32S, it includes freight and delivery costs

China cotton auction policy is bonus policy. Currently, the major sources on the market are 2017/18 cotton, reserved cotton and imported cotton. Imported cotton is restricted by quotas, despite of additional allocation of quotas, most mills use reserved cotton and 2017/18 cotton as the feedstock.

Looking from the chart, it is seen that there are not small price spread between reserved cotton and 2017/18 cotton, and price spread also exists between reserved Xinjiang and upcountry cotton.

Before May 16, price spread between 2017/18 cotton and reserved cotton hovered around 1,000-1,500yuan/mt, spread between 2017/18 cotton and reserved Xinjiang cotton reaches 1,500-2,000yuan/mt and spread between 2017/18 cotton and reserved upcountry cotton reaches 500-1,000yuan/mt. Then, due to the sharp rise of prices, price spread narrowed. After traders were not allowed to take part in the auction from Jun 4, price spread between 2017/18 cotton and reserved cotton started to enlarge. The price gap between 2017/18 cotton and reserved cotton was at 1,500-2,000yuan/mt, up 500yuan/mt.

3. Reserved cotton buyers

Reserved sales from Mar 6 to Jul 9, 2018

Top 20 companies

Traded volumes (KT)

Chinatex Cotton International Trading Co., Ltd.

53.6

Chinatex Cotton Import and Export Co., Ltd.

50.1

CNCGC Langfang Storage Co., Ltd.

44.2

Shandong Guanxian Guanchang Textiles Co., Ltd.

27.4

CNCGC Shaanxi Cotton Co., Ltd.

27.1

Weiqiao Textile Co., Ltd.

24.4

Zhejiang Topchance Textile Feedstock Co., Ltd.

24.4

Xiamen International Trade Group Corp., Ltd.

19.8

Hubei Xiaomian Industry Group Co., Ltd

16.6

China National Cotton Group Corporation

16.4

Baoding Yinxiang Cotton Industry Co., Ltd.

16.3

Hubei Jin'an Textile Group Co., Ltd.

16.2

Henan Xinye Textile Co.,Ltd

14.5

Zhejiang Jufeng Trade Co., Ltd

14.2

CNCGC Nangong Hongtai Cotton Co., Ltd.

14.2

Jiangsu Baoda Textile?Co., Ltd

13.5

Jiangsu Dongguo Imp & Exp Co., Ltd

12.8

Xuzhou Huapeng Cotton and Linen Co., Ltd

12.5

Hebei Xingyu Textile Co., Ltd.

12.2

China SDIC International Trade Nanjing Co.,Ltd

11.9

Total

442.4(29.7%)

Though traders were not allowed to participant reserved cotton auction from Jun 4, the volumes that traders purchased before were quite large, so traders took the most among top 20 buyers.

4. Estimated total trading volumes of reserved cotton

Estimation of reserved cotton sales in 2018

KT

Average proportion

average trading ratio

Forecast trading volumes (Jul 10-Aug 31)

Total

Xinjiang cotton

37%

97%

420

1310

Upcountry cotton

63%

43%

320

920

Total

——

60%

740

2230

By Jul 9, 1.49 million tons of reserved cotton have been totally sold, with trading proportion of 60.02%. There are 39 working days left until the end of this round of state cotton auction. Based on the average trading proportion, then about 740kt of reserved cotton will be transacted later, and the total trading volumes are forecast to reach 2.23 million tons this year. The reserved cotton left in the state warehouses is estimated at about 3.00 million tons.